"The Union Budget this year will be critical in maintaining momentum amidst a mix of domestic and global challenges," Niraj Kumar, the Chief Investment Officer at Future Generali India Life Insurance Company said in an interview to Moneycontrol.
He believes three critical areas of the budget would be continuation of double-digit growth in capex spending, rationalization of taxes and impetus to consumption.
According to him, market seems to be going into the Budget with low expectations thereby any chance of a negative surprise is moderate.
As far as the consumption sector is concerned, going ahead, "we do not expect that the road to recovery would be V-shaped unless there are any major tax breaks given by the government in the upcoming budget," said the market veteran seasoned for more than 20 years in managing funds.
Do you think the market may not see a consolidation breakout before the Union Budget?
Historically, markets tend to tread cautiously and remain rangebound in the run-up to the Union Budget. This time around, we are leading up to the Budget in a rather peculiar environment where weak Q2 GDP print, weak Q2 earnings season, persistent selling pressure from the FIIs and weak capex spending by government have led to a sharp correction in the Indian markets. With the Union Budget still being a few weeks away, markets will be keenly looking at the impending earnings season along with the policy steps to be taken by President Trump after swearing in and its resultant impact on macro variables like bond yield, currency, etc.
Markets will also keenly await the domestic inflation trajectory and its impact on monetary policy. Once these events play out over next fortnight, the market’s attention will shift towards Budget with three key expectations viz. a continued double-digit growth in capex, impetus on urban consumption and tax policies. Market seems to be going into the Budget with low expectations thereby any chance of a negative surprise is moderate. Anyhow, with policymaking becoming a year-round activity, the Union Budget seems to have lost a bit of its relevance.
Which factors could cause significant damage to the equity market in 2025?
2025 could be a volatile and challenging year with the economic outlook clouded with uncertainty. We believe the risk for the markets will emanate from the Global economy where the last mile of disinflation is proving to be an arduous task. The growth differential between US and Rest of the World is attracting global flows into US resulting into extreme dollar strength. Moreover, the threat of tariffs on major trading partners of the US is leading to increased pressure on formers’ currencies. This may very well lead to competitive devaluation of the currencies resulting into currency wars.
While Indian markets have seen some correction with the benchmark index correcting over 10%, the US markets trading significantly ahead of its median valuations are rather complacent. Any negative surprise in the US can lead to a sharp correction in global equity markets. Having said that, markets have shown incredible resilience in the past and we believe strong domestic macros will imply that any such correction on the back of global triggers will provide buying opportunities in the Indian context.
Do you think there is a high chance of the economy growing below the RBI's forecast of 6.6% for the full year?
We believe there could be some undershooting of growth versus the RBI projections owing to the twin impact of a) tight monetary policy and macroprudential measures undertaken by RBI to decelerate retail credit growth, and b) slowdown in capex spending owing to general elections. Going forward, the capex spending should pick up led by stout revenue buoyancy of the central government.
Consumption outlook is also turning better led by rural recovery on the back of normal monsoon, high reservoir levels, and strong Rabi sowing. The recent high frequency indicators like Diesel consumption, Auto sales, PMI, etc. point to a recovery in economic growth in H2FY25 as well, and hence, we believe the growth undershoot is transitory in nature and should revert to 6.5%+ rate soon.
Are you more bullish on pharma and healthcare from here on?
Pharma and healthcare have delivered robust returns over the last year. 2025 could be another promising year for the sector driven by strong earnings visibility, weakening of rupee vis-à-vis dollar, and President’s Trump’s policies. Given the impetus on low-cost healthcare, we believe the generic players will benefit from Trump’ stated objective of reducing healthcare costs.
Another shot in the arm for Indian pharma players could be the implementation of the Biosecure Act which can provide incremental contract manufacturing opportunities as established players diversify their sourcing away from China. Having said this, we will have to be selective on the sector and evaluate companies based on product pipeline and should be conscious of the companies which have very high dependency on single products.
Do you expect a strong recovery in the consumption sector in FY26?
The consumption space over past six months has slowed down considerably as the lagged impact of the macro prudential measures undertaken by the RBI to slow down the retail credit became visible. The consumer sentiments have been quite weak with Inflation and stagnant wage growth in addition to lack of credit availability impacting purchasing power. Within consumption also there has been deviations with Consumer durables and Quick commerce doing well while consumer staples have been weak.
Going ahead as well, we do not expect that the road to recovery would be V-shaped unless there are any major tax breaks given by the government in the upcoming budget. If not, then we expect a more gradual recovery with expected easing of inflation and decline in interest rates. In addition, we do not believe the growth would be broad based and investors should look to focus on segments / companies that are in the high growth phase and are gaining market share within their respective industry.
Considering the domestic and global environment, what should be the key focus areas in the Union Budget this year?
The Union Budget this year will be critical in maintaining momentum amidst a mix of domestic and global challenges. We believe three critical areas of the budget would be continuation of double-digit growth in capex spending, rationalization of taxes and impetus to consumption. Moreover, thrust on manufacturing through extension of PLI benefits, spending on social sectors like Healthcare, Education, Climate & water will be critical from driving sustainable growth perspective. While focussing on growth, government will also have to be mindful of the fiscal consolidation and will to strike a fine balance fiscal discipline and growth initiatives to ensure that it crowds in private investments.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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